US economy continues slow expansion

WASHINGTON — The economy expanded in the third quarter at a faster pace than forecast, led by the biggest increase in inventories in more than a year as household purchases and business investment slowed.

Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent gain the prior three months, a Commerce Department report showed Thursday in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer spending climbed 1.5 percent, the smallest increase since 2011.

The biggest gain in inventories since the first three months of 2012 risks holding back production in the current quarter, which began with a 16-day partial shutdown of the federal government. Jobs data tomorrow are projected to show hiring slowed in October, helping explain why Federal Reserve policymakers are pressing on with stimulus.

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“Growth is steady but not that great,” Jonathan Basile, an economist at Credit Suisse in New York, said before the report. “The shutdown will have a temporary effect on this quarter’s growth.”

Estimates of the 87 economists surveyed for third-quarter GDP, the value of all goods and services produced, ranged from 1.2 percent to 3 percent. The data, initially slated for release on Oct. 30, were delayed by the government shutdown.

The GDP estimate is the first of three for the quarter, with the other releases scheduled for December when more information becomes available.

Another report showed first-time claims for jobless benefits fell by 9,000 to 336,000 last week, according to the Labor Department.

Inventories added 0.8 percentage point to third-quarter growth. Stockpiles increased at an $86 billion annualized pace after a $56.6 billion rate in the second quarter.

The trade gap and inventories are two of the most volatile components in GDP calculations. A narrowing of the trade deficit added 0.3 percentage point to GDP growth.

The gain in household consumption, which accounts for about 70 percent of the economy, compared with a 1.6 percent median forecast in the Bloomberg survey and followed a 1.8 percent advance from April through June. Purchases added 1 percentage point to growth.

Final sales, which exclude inventories, increased 2 percent in the third quarter after a 2.1 percent gain the prior three months.

Corporate spending on equipment decreased at a 3.7 percent annualized pace, subtracting 0.2 percentage point from growth, the most in a year. Investment in nonresidential structures slowed.

Government spending rose by 0.2 percent, reflecting a pickup in state and local outlays. Spending by federal agencies declined at a 1.7 percent pace.

The report also showed price pressures remain contained. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.4 percent annualized pace.

One bright spot for the economy this year has been motor vehicle sales as Americans take advantage of cheaper borrowing costs to replace older models. Purchases averaged 15.7 million at an annual rate in the third quarter, up from 15.5 million in the prior three months, according to Ward’s Automotive Group data.

Demand held up at the start of the fourth quarter for General Motors and Ford as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.

“What we saw early in the month was some softness, but we were very encouraged when we saw the retail demand in the industry bounce back,” John Felice, Ford’s vice president of U.S. marketing, sales and service, said on a conference call.

While Americans are benefiting from a boost to wealth from rising stock prices and home values, a pickup in the pace of spending depends on bigger gains in employment and wages.

Payroll additions have slowed, averaging 143,000 from July through September. In the first half of the year, employment gains averaged 195,000. Labor Department figures due tomorrow are projected to show an increase of 120,000 for October, according to the Bloomberg survey median.

Economic growth this quarter will be less than economists projected at the start of the budget impasse that began Oct. 1. GDP will expand at a 2 percent annualized rate, according to the median projection in a Bloomberg survey on Oct. 31, down from a 2.4 percent forecast in an Oct. 4-9 survey.

The figure will reflect in a decline in government output, estimated by the number of hours put in by federal workers, as well as cutbacks at contractors, economists said.

The effect of the budget impasse on the economy, the recent slowdown in job growth and a pause in the housing market help explain why U.S. central bankers are continuing with $85 billion in monthly asset purchases.

“The recovery in the housing sector slowed somewhat in recent months,” the central bank said in the Oct. 30 release. “Fiscal policy is restraining economic growth.”